The Financial Supervisory Service (FSS) has warned that it will investigate not only corporate insurance agencies (GAs) but also primary insurance companies if violations or circumventions of the 1200% rule are confirmed. This warning comes amid concerns that practices aimed at bypassing commission caps, such as providing additional support payments of up to 800% of monthly premiums in the 13th month after contract signing, are continuing.
According to the financial sector on September 4, the FSS gathered executives from life and non-life insurance companies the previous day to announce that if any signs of violating or circumventing the 1200% rule are found, both GAs and primary insurance companies will be subject to investigation.
The FSS also urged insurance companies to refrain from excessive competition. Although two months have passed since the implementation of the 1200% rule, ongoing complaints have led the agency to send a warning message to the insurance industry.
The 1200% rule limits the commission that GAs can pay to agents for contracts signed within the first year to a maximum of 12 times the monthly premium. In recent years, the competition to secure agents has intensified, leading to rampant excessive advance commissions. Some products have been criticized for offering first-year commissions that soar to 1500% to 2000% of the monthly premium, distorting the market.
To address this issue, the financial authorities applied the 1200% rule to GAs starting in July of this year. However, reports indicate that some companies are delaying high commission payments until after the 13th month. While delaying the payment itself does not directly violate regulations, if it is merely a tactic to avoid commission caps, it could be considered a circumvention.
In fact, one major insurance company-affiliated GA has introduced a policy this month to provide additional support payments based on agents' sales performance. If a customer maintains their contract, the additional payment is made in the 13th month. This structure allows the company to maintain high commission rewards by postponing payment until after the first year.
For protection insurance, an additional payment of 200% of the monthly premium is made in the 13th month. For example, if an agent sells a product with a monthly premium of 1 million won, they would receive an additional 2 million won in the 13th month. The additional support rate for a 10-year whole life insurance policy can reach 300% to 500%, with a maximum of 800% depending on the payment period.
The concern is that such high additional support payments could encourage excessive sales competition. Agents may prioritize the size of rewards over customer needs, leading them to push products with more incentives. This could result in fraudulent contracts aimed at securing commissions or unfairly persuading customers to cancel existing contracts and switch to new products.
An agent affiliated with the GA stated, “To receive the additional payment in the 13th month, we must focus on selling specific products like whole life insurance,” adding, “The company has been planning this compensation structure since before the 1200% rule was introduced.”
* This article has been translated by AI.
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